An August Overview
The markets have rallied strongly since the Brexit vote was finalized, a move that was counterintuitive to most investors. In reality, markets typically rally when investors do not expect it and bear markets appear when everyone is apathetic. So, it wasn’t surprising to see the markets rally in the face of this year’s volatility.
There are a couple things we feel are driving this rally:
- The last round of earnings announcements was much stronger than most investors expected. Stocks were selling off because analysts were ratcheting down earnings estimates. So, the bar was pretty low for companies to beat. However, the numbers were particularly impressive in the second quarter.
- The global economies are not as bad as many had feared. It appears China has stabilized and Great Britain, of Brexit fame, just produced one of their strongest GDP reports in ten years.
- There is a definite bias in the asset allocation world toward stocks and away from bonds. The FED looks like they are poised to raise rates at least one more time this year and that has sent traditional bond investors looking for other places to invest.
The markets look a bit tired in the short-term, as they have rallied strongly over the past couple months. We wouldn’t be surprised to see investors take a short-term break. However, we feel that any pullback in this time frame would lead to higher prices down the road. We are currently analyzing markets and sectors to discern where we might deploy more capital.